shelby7vdy: Making Money Now

A new report from CTJ shows that the Bush tax cuts supported by Senator Kyl will provide $231 billion in benefits to the richest fifth of taxpayers in 2012 and just $3 billion to the poorest fifth of taxpayers during that same year. [...]
The CTJ report points out that a better option would be to revive the Making Work Pay Credit that expired at the end of last year, which has been discussed by some Senators but ignored by leaders of both parties.

The report finds that if the Making Work Pay Credit was in effect in 2012, the richest fifth of taxpayers would receive $11 billion while the poorest fifth of taxpayers would receive $7 billion, making it a less costly and more targeted tax cut.

Josh Bivens, an economist at the Economic Policy Institute, agrees.

The simple history of how we got the payroll tax cut is pretty straightforward. In December 2010 the Bush tax cuts were set to expire, while the unemployment rate stood at 9.8 percent. The GOP Congress wanted an extension of the Bush tax cuts while the Obama administration wanted fiscal support to help lower unemployment. The primary outcomes of their negotiation were a two-year extension of the Bush tax cuts, a one-year extension of emergency unemployment insurance (UI) benefits, and a one-year payroll tax cut. This payroll tax cut in a sense supplanted the Making Work Pay (MWP) tax credit – a policy that President Obama campaigned on and which was part of the Recovery Act.
It seems obvious why Republicans didn’t like the MWP credit—it was actually well-targeted at low- and moderate-income households and it was a tax cut associated with the Obama administration. So, to grease the wheels of getting more fiscal support into an economy that needed it, the administration acquiesced to this swapping out of the MWP credit for a payroll tax cut. One is surely allowed to be ambivalent about whether this deal should’ve been struck, but it’s awfully hard to criticize the administration’s impulse behind it—they were actually trying to help ameliorate the very real problem of unemployment. And the MWP-for-payroll tax cut swap actually got more money out into the economy, so it wasn’t all bad.

But the payroll tax cut is pretty middling fiscal support in terms of jobs created per dollar it adds to the deficit. It is notably less efficient as a job creator than the MWP credit. It also provides a political hammer to opponents of Social Security who can claim that the cut has depleted the program’s Trust Fund ahead of schedule, requiring cuts in benefits. These opponents are wrong, of course: the legislation that cut the payroll tax also instructed Treasury to credit the Trust Fund for the lost revenue—but since when has being factually wrong defanged a political argument? And who’s to say that the next year of payroll tax cuts will maintain this commitment to hold the Trust Fund whole?

Now might be a very good time to start talking about it more. Congress has two months to figure out how to proceed on a longer-term fix for helping out low and middle-income families and keeping those families spending. The MWP might just be the best solution. And who knows? After the debacle they've just been through, Republicans might be willing to change the subject.

shelby7vdy

Monday, January 9, 2012

Making Money Now

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